Would your Charitable Trust benefit from becoming an Incorporated Trust Board?

The trustees of a Charitable Trust recently approached us for assistance in applying for a grant from the New Zealand Lottery Grants Board.

Trusts (including family trusts, corporate trusts and charitable trusts) are not separate legal entities, meaning the trustees enter into trust commitments and own trust property personally. Unfortunately for the Trust, the New Zealand Lottery Grants Board only provides grants over $10,000 to legal entities. This meant that the Trust was unable to apply for the grant they wanted.

Fortunately for the Trust, Charitable Trusts (and unincorporated charitable societies) can incorporate as a trust board and become a “legal entity”. This is a relatively straightforward process with several other benefits over and above being able to apply for certain grants from bodies such as the New Zealand Lottery Grants Board.

Ownership of Trust Property

Without incorporating, trustees hold trust property in their personal names on behalf of the trust, e.g. Bill Smith, Tina Brown and Michelle Jones. By comparison, trust property of incorporated trust boards is held in the name of the trust board. This can be beneficial because there is no need to worry about recording the change in legal ownership of trust property whenever trustees change.

This is particularly important if the unincorporated trust owns land, because the Land Registry Office has to be notified each time the trustees change so that the current trustees are recorded as the owners of the land.

However, an incorporated trust board is recorded as the owner of all property, including land, and the ownership records don’t have to be updated every time the trustees change.

Liability of Trustees

Without incorporating, trustees ordinarily enter into agreements and contracts personally, on behalf of the trust. This raises numerous liability concerns for trustees. On the other hand, an incorporated trust board is able to enter into contracts and is sued as a “legal entity” rather than the individual trustees. This reduces the possible personal liability of individual trustees. 

If your organisation is a Charitable Trust or you are considering establishing a charitable organisation, talk to your legal adviser about the potential benefits of becoming an incorporated trust board.